It is the ultimate greenwash nightmare. A tough international deal to curb emissions of greenhouse gases is passed in Mexico later this year. Companies then meet their targets not by cutting their own pollution but by buying into hundreds of forest “conservation” projects round the world. But those projects then fail to deliver real benefits for forests or staunch the flow of carbon into the atmosphere.

Some big-time green groups prosper but the planet burns.

Exhibit A in this doomsday scenario is a 14-year-old forest conservation project in Bolivia called the Noel Kempff Climate Action Project, one of the world’s largest schemes to fix carbon in protected forests. It is the brainchild of the US green group The Nature Conservancy and industrial partners, including the oil company BP and America’s largest burner of coal, American Electric Power.

Like much else, negotiations on Redd stalled in Copenhagen last December. But it is still on the agenda for agreement when talks resume in Cancun next December.

Some think such projects could scupper Redd though. Last autumn Greenpeace dubbed the Neol Kempff project a “carbon scam”.

The $10m project, launched back in 1996, doubled the size of an existing national park and sought to project more than 800,000 hectares of forest, while testing the idea of running a forest as a verifiable carbon sink. It currently employs 27 rangers. With deforestation thought responsible for an estimate 17% of carbon emissions, the stakes are high.

The problem, however, is summed up in one word: leakage. That is jargon for what happens when the loggers put their chainsaws in the back of a pickup, drive down the road to the next forest, and resume activities. In other words, can protecting one place prevent the forces of forest destruction from simply moving elsewhere?

This is hard to do. Since the start of the Noel Kempff project, deforestation rates in Bolivia have gone up. So the argument is that one-off carbon offsetting projects do not deliver real benefits to the atmosphere unless governments undertake much wider efforts to curb deforestation.

For this reason Greenpeace is not alone in believing that Redd should only compensate at the national level. No awarding of carbon credits for “sub-national” projects like Noel Kempff. In other words: unless a nation as a whole cuts deforestation, then nobody gets any carbon credits. Only that way can you stop leakage wrecking it.

But groups such as the Nature Conservancy strongly disagree. They have a clear institutional interest. Their main activity is buying or managing land for conservation. It says there are good reasons for backing sub-national projects and has lobbied hard to ensure they stay in the UN’s plans.

The Nature Conservancy says “national-scale accounting is the ultimate goal” of Redd. “However, a transition period should be allowed in which sub-national or project-scale activities can generate credits for sale in compliance markets.”

It adds that “this type of activity will need to be accomplished at a much larger scale to make a significant difference to greenhouse gas emissions”. And that is where the difference arises. The Nature Conservancy thinks sub-national projects will result in “learning by doing“; its critics think they will fatally undermine the whole enterprise.

While hailed as a model, the Noel Kempff project does not augur well for being able to measure carbon in forests. By 2004, the corporate partners in the project had reported offsets of 7.4m tonnes of CO2. But in 2005 a new evaluation cut that figure to just over 1m.

But even this could turn out to be an over-estimate. The 2005 audit shaved 16% off claimed offsets to account for leakage. Greenpeace cites a report from Winrock International, a non-profit consultancy, saying the long-term leakage figure could be much higher.

How would this play out in the carbon markets? Under the Noel Kempff plan, 51% of the emissions reductions achieved by the project can be claimed as offsets by corporate partners like AEP and BP. The remaining 49% goes to the Bolivian government. The original plan was to sell the emissions reductions on the Chicago Climate Exchange, which trades in voluntary carbon offsets.

Both AEP and BP told the Guardian this week that they had not offset any of their emissions as a result of the Noel Kempff project. BP said: “The project has not yet generated any carbon credits and BP has received no credits from it.”

It says that the company is “committed to combating tropical deforestation and putting in place criteria to ensure that forest offsets can be part of the toolkit for addressing global climate change”. Both BP and AEP referred questions about the progress of the project to The Nature Conservancy.

It says Greenpeace’s description of the Noel Kempff project as a scam was “an attempt to discredit emissions offsets that businesses might claim by supporting such efforts in the future”. Rather, it says, the project was a pioneering activity from which much has been learned. AEP agrees. It says: “The reduction in the offsets from the project should be viewed as a validation, not criticism, of the project as it demonstrates that [The Nature Conservancy] and the project funders were willing to adjust the offset amounts based on improved science.”

But have the right lessons been learned? Better carbon accounting is of course a good thing. But if the Noel Kempff project is truly a model for a future world of carbon markets rooting in rainforest conservation projects, it suggests real problems ahead. If companies with environmental reputations to defend can become bogged down in charges of greenwash, what about the bad guys?

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